01—Abstract
Summary
Summary of the 10-K filed February 15, 2018. Cited figures are marked; the original filing is the authoritative source.
Hubbell Incorporated reported 2017 net sales of $3,668.8 milliona, up from $3,505.2 million in 2016, with operating income of $503.7 million and diluted EPS of $4.39, down from $5.24.
The decline in reported earnings reflects approximately $57 millionb of income tax expense tied to the Tax Cuts and Job Act of 2017 (TCJA), which pushed the effective tax rate to 43.6%. Excluding restructuring and related costs, Aclara transaction costs, the TCJA impact and the debt extinguishment loss, adjusted diluted EPS rose to $5.93 from $5.66 and adjusted operating income reached $534.1 million. Free cash flow was $299.3 million, and the company guided 2018 reported diluted EPS of $6.10 to $6.50 and adjusted diluted EPS of $6.95 to $7.35.
The filing's most significant subsequent event was the February 2, 2018 acquisition of Aclara for approximately $1.1 billionc, which extends the Power segment into smart automation technologies. It was funded with a $450 million senior notes offering, a $500 million term loan and commercial paper, and the company entered a new $750 million revolving credit facility. Total debt was $1,055.2 million at year-end 2017, and debt to total capital was 39%, so the acquisition will meaningfully increase leverage.
By segment, Electrical generated $2,532.8 milliond in net sales (69% of consolidated revenue) with adjusted operating margin of 11.9%, while Power generated $1,136.0 million (31%) with adjusted operating margin of 20.6%. Management expects acquisitions to contribute approximately 15% to 2018 net sales growth, including Aclara, and the company repurchased $92.5 million of stock in 2017 and authorized a new $400 million repurchase program.
02—Key points
Key Highlights
- Net sales rose to $3,668.8 million in 2017 from $3,505.2 million in 2016, with acquisitions adding two percentage points and organic volume adding three.
- Reported diluted EPS fell to $4.39 from $5.24, driven by roughly $57 million of TCJA-related income tax expense; adjusted diluted EPS rose to $5.93 from $5.66.
- The effective tax rate was 43.6% in 2017, versus 30.8% in 2016, including the provisional TCJA impacts.
- Aclara, acquired February 2, 2018 for approximately $1.1 billion, was funded with a $450 million notes offering, a $500 million term loan and commercial paper.
- Operating cash flow was $379.0 million and free cash flow was $299.3 million; cash dividends declared were $2.87 per share, up from $2.59.
- 2018 guidance calls for reported diluted EPS of $6.10 to $6.50 and adjusted diluted EPS of $6.95 to $7.35.
- Backlog at December 31, 2017 was approximately $355.5 million, compared with $297.4 million a year earlier.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Hubbell kept $0.07.
- Revenue$3.67B100.0%
- Cost of revenue−$2.51B68.5%
- Gross profit$1.16B31.5%
- Operating costs−$636.3M17.3%
- Operating income$518.8M14.1%
- Interest, other & tax−$275.7M7.5%
- Net income$243.1M6.6%
Where FY2017 revenue went
$3.67B- Cost of revenue: $2.51B, 69% of revenue
- SG&A: $636.3M, 17% of revenue
- Net income: $243.1M, 6.6% of revenue
- Interest, other & tax: $275.7M, 7.5% of revenue
Kept 6.6% as net income
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 15, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $3.67B$3.51B | +4.7% |
| Cost of Revenue | $2.51B$2.40B | +4.7% |
| Gross Profit | $1.16B$1.11B | +4.5% |
| SG&A Expenses | $636.30M$615.30M | +3.4% |
| Operating Income | $518.80M$489.80M | +5.9% |
| Interest Expense | $44.90M$43.40M | +3.5% |
| Net Income | $243.10M$293.00M | −17.0% |
| EPS (Basic) | $4.42$5.26 | −16.0% |
| EPS (Diluted) | $4.39$5.24 | −16.2% |
| Shares Outstanding (Basic) | 54.80M55.50M | −1.3% |
| Shares Outstanding (Diluted) | 55.10M55.70M | −1.1% |
05—Questions
Frequently Asked Questions
How did Hubbell's reported earnings change in 2017?
Net income attributable to Hubbell was $243.1 million, down from $293.0 million, and diluted EPS was $4.39 versus $5.24. The filing attributes about $57 million, or $1.02 per share, to the TCJA, and also cites a $10.1 million pre-tax loss on early debt extinguishment and $23.7 million of restructuring and related costs.
What is the Aclara acquisition and how was it financed?
Hubbell acquired Meter Readings Holding Group, LLC (Aclara Technologies) on February 2, 2018 for approximately $1.1 billion in cash. Aclara provides smart infrastructure solutions for electric, gas and water utilities, including advanced metering and grid monitoring sensors. It was funded with a $450 million 3.50% notes offering due 2028, a $500 million term loan, and commercial paper for the remaining price.
How strong is Hubbell's balance sheet and liquidity?
At December 31, 2017, total debt was $1,055.2 million and net debt was $608.0 million, with debt to total capital at 39%. The company had $375.0 million of cash and cash equivalents and a $750 million revolving facility that was undrawn at year-end. The filing notes that the Aclara funding will increase debt and that the single financial covenant caps total debt at 65% of total capitalization.
Which segment drives Hubbell's results?
The Electrical segment produced $2,532.8 million in 2017 net sales (69% of revenue) with operating income of $282.5 million. The Power segment produced $1,136.0 million (31%) with operating income of $221.2 million and an adjusted operating margin of 20.6%, which the filing describes as the stronger margin business.
What does Hubbell expect for 2018?
Management expects aggregate end-market growth of approximately two to four percent and acquisitions to contribute about 15% to net sales growth, including Aclara. It guides reported diluted EPS to $6.10 to $6.50 and adjusted diluted EPS to $6.95 to $7.35, and expects free cash flow to equal net income attributable to Hubbell.
06—Continue